While global equities have performed pretty well year to date, Australian share returns have been relatively disappointing, particularly when measured in USD. However, there is still a month to go before we wrap up 2023.
Source: BCA Research
Indeed, overall global equities have risen by around 16% year to date in USD terms, outperforming global bonds by roughly the same amount. However, the large concentration of US mega-cap tech stocks (the so-called “Magnificent Seven”) in the benchmark index has called into question the durability of this rally. There is some validity to this concern: an equal-weighted index of US stocks has risen by only 8% versus 20% for the S&P 500.
That said, the rally at the global level has involved much more than a select group of the leading US tech stocks. The stock markets of Europe and Japan have risen by 17% and 16% respectively. Emerging Europe (countries such as Poland, Czech Republic, Hungary and Turkey) and Latin American equities, which have risen by 27% and 22% respectively so far this year, have been the best performers.
The weak spots in global equities have been Commonwealth countries like India, the UK, Canada and Australia (with returns of 10%, 8%, 7% and 3% respectively). And even weaker have been Chinese stocks, which have lost 7% this year, dragging down the performance of the broad emerging markets index in the process. But note that much of the percentage returns above are driven by currency movements, namely strength or weakness versus the USD. With the AUD seemingly off its lows, and prospects for a pretty reasonable year ahead for the Australian economy, we would not be surprised to see the ASX shoot up the ranks of the performance table throughout 2024.
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